Tfws, Inc. v. Schaefer

• Decision Date: 31 March 2003
• Docket Number: No. 02-1199.,02-1199.
• Citation: 325 F.3d 234
• Parties: TFWS, Incorporated, t/a Beltway Fine Wine and Spirits, Plaintiff-Appellant, v. William Donald SCHAEFER, in his official capacity as Comptroller of the Treasury of the State of Maryland; Charles W. Ehart, in his official capacity as Administrator of the Alcohol and Tobacco Tax Unit of the Comptroller of the State of Maryland, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 234

325 F.3d 234

TFWS, Incorporated, t/a Beltway Fine Wine and Spirits, Plaintiff-Appellant, v. William Donald SCHAEFER, in his official capacity as Comptroller of the Treasury of the State of Maryland; Charles W. Ehart, in his official capacity as Administrator of the Alcohol and Tobacco Tax Unit of the Comptroller of the State of Maryland, Defendants-Appellees.

No. 02-1199.

United States Court of Appeals, Fourth Circuit.

Argued: October 30, 2002.

Decided: March 31, 2003.

ARGUED: William James Murphy, Murphy & Shaffer, Baltimore, Maryland, for Appellant. Steven Marshall Sullivan, Assistant Attorney General, Baltimore, Maryland, for Appellees. ON BRIEF: John J. Connolly, Murphy & Shaffer, Baltimore Maryland, for Appellant. J. Joseph Curran, Jr., Attorney General of Maryland, Andrew H. Baida, Solicitor General, Meredyth Smith Andrus, Assistant Attorney General, Baltimore, Maryland, for Appellees.

Before LUTTIG, MICHAEL, and TRAXLER, Circuit Judges.

Vacated and remanded by published opinion. Judge MICHAEL wrote the opinion, in which Judge LUTTIG and Judge TRAXLER joined.

OPINION

MICHAEL, Circuit Judge:

This case is on its second trip to this court. TFWS, Inc., a large liquor retailer in Maryland, is suing the State Comptroller to obtain a declaration that certain Maryland regulations governing the wholesale pricing of liquor and wine violate the Sherman Act. When the case was before us the first time, we affirmed the district court's determination that the regulations violate the Sherman Act, but we remanded for further consideration of the Comptroller's Twenty-first Amendment defense. On remand the district court granted summary judgment to the Comptroller, ultimately concluding that Maryland's interest in promoting temperance, which is protected by the Twenty-first Amendment, outweighs the federal interest in promoting competition under the Sherman Act. However, one of the questions that was to be decided on remand — whether the regulations are effective in promoting temperance — involves disputed factual issues that cannot be resolved on summary judgment. We therefore vacate the award of summary judgment to the Comptroller and remand once again for further proceedings.

I.

The Maryland liquor regulations under challenge by TFWS are explained in some detail in our first opinion, see TFWS, Inc. v. Schaefer, 242 F.3d 198, 202-03 (4th Cir. 2001), so we offer only a brief summary here. The first regulation, the post-and-hold pricing system, prescribes how and when liquor wholesalers may change their prices. See Md. Ann.Code art. 2B, § 12-103(c) (Lexis 2001). By the fifth of each month, wholesalers must post a schedule of prices with the Comptroller. Md. Regs. Code tit. 03, § 02.01.05B(2) (2003). These prices are locked in for the following month. Id. § .05B(3)(a). The Comptroller makes each wholesaler's monthly posting available to all other wholesalers. Id. § .05D. The second regulation is known as the volume discount ban or the antidiscrimination rule. It requires a wholesaler to offer every retailer the same price for a given product. See Md. Ann. Code art. 2B, § 12-102(a) (Lexis 2001); Md. Regs. Code tit. 03, § 02.01.05B(3)(c) (2003). Wholesalers cannot cut prices to large retailers because discounts "of any nature" are prohibited. See Md. Regs.Code tit. 03, § 02.01.05B(3)(c) (2003).

In our first opinion we affirmed the district court's determination (1) that the post-and-hold regulation is a hybrid restraint that is illegal per se under § 1 of the Sherman Act, (2) that the volume discount ban is a per se violation of § 1, and (3) that Maryland cannot claim "state action" immunity from the Sherman Act because the regulatory scheme is not actively supervised by the state. See TFWS, 242 F.3d at 208-11; see also id. at 213-15 (Luttig, J., concurring). We held, however, that the district court's dismissal of TFWS's complaint on Twenty-first Amendment grounds was premature. In the first round the district court concluded on its own motion that "despite their anti-competitive effect," the regulations "should be upheld under the [liquor control] powers reserved to the states under the Twenty-first Amendment." TFWS, Inc. v. Schaefer, Civ. No. S99-2008, slip op. at 16-17 (D.Md. Sept. 1, 1999). We held that it was too early for the district court to reach that conclusion because "neither side had a chance to make its case on the Twenty-first Amendment issue." TFWS, 242 F.3d at 211. As a result, we vacated the order of dismissal and remanded the case with the following instructions:

On remand Maryland should be given the opportunity to assert and substantiate its Twenty-first Amendment defense, and TFWS should be permitted to respond. The analysis the district court should undertake in analyzing Maryland's interest and then balancing it against the federal interest is straightforward. First, the court should examine the expressed state interest and the closeness of that interest to those protected by the Twenty-first Amendment. We acknowledge that little analysis is needed on this point. Temperance is the avowed goal of the Maryland regulatory scheme, and the Twenty-first Amendment definitely allows a state to promote temperance. Second, the court should examine whether, and to what extent, the regulatory scheme serves its stated purpose in promoting temperance. Simply put, is the scheme effective? Again, the answer to this question may ultimately rest upon findings and conclusions having a large factual component. Finally, the court should balance the state's interest in temperance (to the extent that interest is actually furthered by the regulatory scheme) against the federal interest in promoting competition under the Sherman Act.

Id. at 213 (quotation marks and citation omitted).

On remand the parties conducted discovery, which included the exchange of reports from expert witnesses, who were also deposed. In due course the parties filed cross-motions for summary judgment. The district court granted summary judgment for the Comptroller, (1) finding that the Maryland regulations achieved their stated purpose of promoting temperance and (2) concluding that Maryland's interest in promoting temperance outweighed the federal interest in preserving free competition. TFWS appeals. We conduct a de novo review of the grant of summary judgment. Bond v. Blum, 317 F.3d 385, 394 (4th Cir.2003).

II.

TFWS's appeal boils down to the argument that the district court relied on disputed evidence to grant summary judgment to the Comptroller on his Twenty-first Amendment defense. We will look at key issues considered on remand to see whether they could be decided on summary judgment.

A.

The district court's first job in deciding whether the Comptroller had established his Twenty-first Amendment defense was to "examine the expressed state interest [in establishing the regulatory scheme] and the closeness of that interest to those protected by the Twenty-first Amendment." TFWS, 242 F.3d at 213 (emphasis added). The Maryland legislature authorized the regulations for the express purpose of "fostering and promoting temperance" and "eliminat[ing] the undue stimulation of the sale of alcoholic beverages." Md. Ann.Code art. 2B §§ 12-102(a), -103(a) (Lexis 2001). See also id. at § 1-101(a). The district court therefore concluded that Maryland established its post-and-hold liquor pricing system and its volume discount ban with the "avowed goal of promoting temperance," which "is a proper objective under the Twenty-first Amendment." TFWS, 183 F.Supp.2d at 791. This conclusion cannot be disputed, so we agree.

B.

1.

Our second question for the district court on remand was "whether, and to what extent, the regulatory scheme serves its stated purpose in promoting temperance." TFWS, 242 F.3d at 213. This inquiry, we said, should focus on a basic question, "[I]s the scheme effective?" Id. Whether the regulatory scheme actually serves its stated purpose is essentially a question of fact. In the summary judgment proceedings on remand, each side presented its case on this question largely through experts, who offered two types of evidence, theoretical and empirical. The theoretical evidence applies general principles of economics to Maryland's regulatory scheme. Each side's theoretical evidence predicts the consumption results that it claims should follow from Maryland's scheme. The empirical evidence includes actual data about alcohol prices and consumption in Maryland and other states or localities.

The Comptroller's evidence showed the various ways that the regulations could, according to economic principles, promote temperance. The Comptroller's first expert was Dr. Frank J. Chaloupka, a professor of economics at the University of Illinois. Dr. Chaloupka offered the opinion, based on his review of published studies, that (in general) alcohol consumption falls as prices rise. This, he said, is in line with "one of the fundamental laws of economics — that of the downward sloping demand curve, which states that as the price of a product rises, the quantity demanded of that product falls." The Comptroller's second expert was Dr. David T. Levy, a professor of economics at the University of Baltimore. Dr. Levy suggested ways in which the Maryland scheme could, as a theoretical matter, reduce price competition and lead to higher liquor prices. Dr. Levy talked first about the volume discount ban. The discount ban prevents a wholesaler from offering its customers (liquor retailers) price discounts. If wholesale price discounts were legal, the lower prices would likely be passed on to consumers with a resulting increase in demand. Further, because wholesalers cannot provide discounts as a reward to retailers who increase sales of a given product, the retailers have less incentive to offer price promotions or sales on that product. Dr. Levy also explained why the post-and-hold regulation should have an anticompetitive effect. This...